As methods and devices for engaging in financial transactions have increased and expanded into new horizons, age old problems such as fraud and counterfeiting persist. In fact, as applications and devices are developed making credit or debit based transactions a more attractive and readily available alternative to cash, fraud and counterfeiting activities have increased proportionately.
In order to protect financial institutions, consumers and merchants from the fraudulent use of transaction cards, the industry has developed and introduced many features designed to reduce fraud and counterfeiting such as holograms, special over-layers, and watermarks. Nonetheless, many of these features are proving to be less effective as financial transactions are increasingly being conducted in a non-face-to-face environment.
As a result of the introduction of new payment channels, devices and methods, new tools are needed to reduce fraud within the payment card industry. One of the largest challenges will be to prevent unauthorized use of payment account data. Current protection methods rely upon static account or authentication data which are vulnerable to multiple forms of attack.
One of the primary means by which unauthorized use of account information can be prevented is to include data that dynamically changes from transaction to transaction. Dynamically changing data makes compromised data essentially worthless for subsequent transactions because such transactions will require alternate data.
In addition, when account information is compromised via hacking, skimming, phishing or any other method, the use of the account associated with the compromised card is discontinued and the compromised card is replaced. The replacement card will be associated with a different account from the one associated with the compromised card and will display new card characteristics such as a new personal account number, card verification value, and/or expiration date. This requires the additional expense of issuing a new card to the cardholder in addition to requiring the cardholder to wait until a newly issued card can be delivered from the issuer of the card.